Shires Income PLC Delivers Strong Half-Year Results with 15% NAV Return and Dividend Growth

My take: buybacks have helped keep the rating in check, but a mid-single-digit discount leaves scope for further tightening if performance and income delivery stay on track. That’s a potential tailwind for future share price total returns.

Gearing and cost of debt: a net positive this half

Gearing – borrowing to invest – stood at 15.1% net at period end, down from 16.5% in March. The trust has a £20 million facility, with £19 million drawn. The weighted average borrowing cost was 4.7%, and management says gearing contributed positively to returns.

The structure is sensible for an income trust: the Board notionally allocates borrowings to the less volatile fixed income slice, freeing up equity capital for lower-yielding, higher-growth names. With rates edging lower, the fixed 3.903% tranche to April 2027 looks a comfort, while the revolving credit facility provides flexibility.

Portfolio drivers: contractors and financials shine; one notable write-down

The equity portfolio returned 15.6%, doing the heavy lifting. Sector-wise, industrials (+35%), financials (+18%) and utilities (+13%) were strong. Energy (+3%), consumer discretionary (+3%) and healthcare (+2%) lagged but were still positive.

• Construction contractors led from the front: Kier (+79%), Balfour Beatty (+52%) and Morgan Sindall (+38%). The theme is infrastructure spend and resilient order books.
• Financials rallied: OSB Group (+35%), Close Brothers (+78%) after a better-than-expected FCA outcome, and insurers Chesnara (+28%) and Aviva (+32%). Asset manager M&G added +31%.
• New and added positions after weakness include Greggs (-11% post purchase), Victrex (-11%), Midwich (-10%) and Pets at Home (-21%). The Manager frames these as multi-year turnarounds rather than quick trades.
• Wood Group was the clear disappointment. With higher debt, an inquiry into historic accounting and the CFO’s departure, the shares are suspended. The holding is prudently marked to zero, though a private bid could still change the outcome.

Top holdings and diversification

At the top of the book you’ll find a mix of defensives and cyclicals: Shell, Morgan Sindall, AstraZeneca, HSBC, Chesnara, Balfour Beatty, National Grid, Diversified Energy, M&G and Sirius Real Estate. No single position dominates – the ten largest account for 26.6% of the portfolio – which should help smooth bumps.

Preference shares: the steady income engine at 17.1% of assets

Shires is differentiated by its 17.1% allocation to preference shares and fixed interest. These behaved as expected in a risk-on market, returning 5.1% versus the faster-moving equities, but they provide a crucial income bedrock at yields above the benchmark.

During the period, the General Accident preference tender completed, with proceeds mainly redeployed into Nationwide 10.25% perpetual debt at a 7.8% yield on purchase – a neat income uplift.

Costs and charges: still competitive for an active income trust

The ongoing charges ratio is 1.02%, slightly up from 1.00%. Management fees are tiered at 0.45% up to £100 million and 0.40% thereafter, plus £120,000 for admin services. For an actively managed, geared, income-focused trust with a hybrid equity/pref share approach, that sits firmly in the reasonable camp.

Macro backdrop: tariffs, rates, and why valuation still favours the UK

Markets navigated a noisy half. US tariff hikes initially knocked equities before rate-cut hopes and resilient earnings took over. In the UK, growth remains sluggish and fiscal headroom is tight. Even so, the Manager argues UK valuations remain attractive relative to global peers, with distribution yields (dividends plus buybacks) at appealing levels and payout ratios still below pre-Covid.

If inflation continues to cool, faster Bank of England rate cuts could both stimulate growth and ease government borrowing costs – a setup that could support domestically focused UK names, an area the team sees as rich with value.

Why this update matters for investors

• Delivery against objective: strong NAV outperformance and a clear route to at least 15.50p in dividends underline the trust’s income-and-growth brief.
• Balance of offence and defence: a blend of UK equities and higher-yielding preference shares tempers volatility while keeping the income engine humming.
• Discount opportunity: a 5.7% discount offers a margin of safety. Continued execution and buybacks could narrow that gap.
• Risks are live but recognised: concentration in UK mid-caps, macro uncertainty around the UK Budget, and the Wood Group write-down. The diversified portfolio and income reserves help.

Plain-English glossary

• NAV: the per-share value of the portfolio after debts and costs.
• Total return: price change plus dividends, assuming reinvestment.
• Discount: when the share price is below NAV; a potential source of extra return if it narrows.
• Gearing: borrowing to invest; can boost gains and losses.

My verdict

This is a confident half-year from Shires Income. Beating the market while growing revenue earnings and guiding to an at least 15.50p dividend is exactly what income investors want to see. The Wood Group zero is a blemish, but it’s contained, and the share buybacks, gearing discipline and preference share income all add support.

For those seeking UK equity income with a reliable yield, sensible valuation and a manager willing to lean into underappreciated UK names, Shires looks in good shape. As ever, watch the discount, the rate path, and delivery on the dividend plan over the next two quarters.